UBS revises FY24 GDP growth forecast up by 70 bps to 6.2 pc

Citing a better-than-estimated global growth outlook, lower global crude oil prices and robust services exports, a foreign brokerage has revised upwards its India growth forecast by 70 bps to 6.2 per cent for the current fiscal.

House economists at Swiss brokerage UBS have already revised global growth projections upwards by nearly 50 bps to 2.6 per cent in 2023, led by China's early reopening, resilience in European data and revision in the US growth numbers.

The domestic economy has clipped at 7.2 per cent in FY23, 20 bps higher than what was forecast earlier.

On the FY23 GDP growth of 7.2 per cent, UBS Securities India chief economist Tanvee Gupta-Jain said the same was driven by the much higher than expected Q4 growth, which printed in at 6.1 per cent.

The consensus expectation is 6 per cent growth in FY24 while the Reserve Bank pegs it at 6.5 per cent.

There are upside risks to the country's growth forecast on the better-than-estimated global growth outlook, lower global oil prices and robust services exports. This has us revising our FY24 real GDP growth forecast higher by 70 bps to 6.2 per cent, Gupta Jain said in a note on Thursday.

On the crude front, she expects it to average at USD 75 a barrel in FY24 if the country imports 25 per cent of its oil need from Russia -- much lower than the earlier estimate of USD 90 a barrel.

A 10 per cent decline in average crude oil prices would push real GDP growth higher by 20 bps if the fuel costs are passed on to consumers. However, the impact would be non-linear in case of a subsequent fall in oil prices.

Another key enabler is the robust trend in services surplus, which could support net exports (of goods and services) contribution to overall growth even as global growth headwinds remain.

She also sees inflation averaging at 5.1 per cent even as weather-related risks remain. Her earlier forecast was to average 5.3 per cent in FY24.

This moderation is partly on account of the slowing domestic demand, the pass-through of correction in global commodity prices, including fuel price cuts in H2FY24, lags from monetary policy to inflation; improvements in global supply chains and lastly base effect, Gutpa Jain said.

On the monetary front, she maintains the base case expectation of a shallow easing cycle of 50 bps cut to commence from H2. But she does not think the RBI is likely to cut rates before the Fed considering the interest rate differential between the repo rate and the effective Fed fund rate (142 bps currently) is the lowest since June 2006.